New UK Residential Property Developer Tax: Triggers For Liability

• Published date: 29 September 2021
• Subject Matter: Real Estate and Construction, Tax, Construction & Planning, Real Estate, Corporate Tax, Property Taxes
• Law Firm: Bryan Cave Leighton Paisner LLP
• Author: Ms Clare Eccles

Summary

Following publication of the new Residential Property Developer Tax for technical consultation, we examine when this tax will be charged and the types of development activities that will bring developers within scope.

The Treasury has published draft legislation for the Residential Property Developer Tax (RPDT) for technical consultation ahead of its inclusion in the 2021-22 Finance Bill. This follows an initial consultation on the policy design in April 2021, on which BCLP has previously blogged.

The RPDT is a new tax to be collected by HMRC that will take effect on 1 April 2022. It will be charged on large residential property developers and will be used to help pay for the removal of flammable cladding from high-rise buildings. The final design of the tax, including the rate of the tax, will be announced at the Autumn Budget on 27 October 2021.

Liability for RPDT

The RPDT will be charged on the residential property development profits of corporate residential property developers ("RP developers") at a rate that is yet to be announced.

As currently drafted, RP developers that are within the charge to corporation tax and undertake 'residential property development activities' ('RPD activities') will be liable for the RPDT. For the purposes of this blog, we discuss the types of activities that will potentially trigger liability for RPDT rather than the design of the tax.

What will bring a developer within scope of the RPDT?

To fall within the scope of the RPDT, RP developers must carry out an RPD activity:

• on or in connection with land it has, or had, an interest in and
• for the purposes of, or in connection with, the development of residential property.

What constitutes an interest in land?

An interest in land is widely defined and includes interests, rights or powers over land which are held as part of trading stock of a trade. A company is deemed to hold an interest in land if an interest in that land is held by any related company. However, mortgagors and licensees are excluded.

What comprises an RPD activity?

Almost anything typically carried out during the development of residential property will be an RPD activity. The draft legislation provides a non-exhaustive list that includes dealing in, designing, seeking planning permission, constructing, adapting, marketing and managing residential property and any ancillary activities. Profits from these activities are all included within the RP developer's base for the tax.

Planning permission...